1. Field of the Invention
This invention is in the general field of electronic payment methods, and more specifically as related to point-of-sale transactions between customers, merchants, and merchant banks.
2. Description of the Related Art
Electronic payment methods, in which consumers can conveniently pay by credit cards, debit cards, electronic checks, and other payment methods, have become popular in recent years. Generally, these methods are implemented by various computerized devices, including various point-of-sale terminals, communication networks (e.g. everything from analog telephone lines to high speed dedicated computer networks, including the Internet), computer servers, databases, and the like.
Electronic payment methods facilitate commerce because customers can more easily make quick decisions to purchase items and services without the burden of having to carry cash, or having to pay using slow and laborious methods such as mailing cash or checks. Merchants also appreciate these various electronic payment methods because they stimulate business. In particular the practice of extending at least short-term credit card credit to customers stimulates commerce because customers to not have to save up for long periods of time before purchasing items and services, and thus are more open to new expenditures.
Unfortunately, some customers do not always pay their bills on time, and some customers do not pay at all. Thus, as for any type of non-cash payment there is always some element of risk involved in electronic payment methods.
Many merchants dislike this risk, and as a result, various electronic payment intermediary services, most famously Visa and MasterCard, have emerged to help merchants manage risk. Credit card services such as Visa and MasterCard agree that provided that the merchant complies with their rules, Visa and MasterCard will assume at least some of the risk of customer non-payment.
These services charge both participating merchants and customers for this risk management function. Customers are charged varying interest rates on the balances in their credit accounts according to various formulas, such as FICO scores. Merchants are also charged as well, typically on the order of a 3% transaction fee per transaction.
By contrast, other forms of electronic payment are often lower risk. Debit or ATM cards, for example, which draw upon consumer money that is presumed to be already on deposit in a bank or other financial institution, are considered to be less risky. Thus, in contrast to the 3% rates charged to merchants for credit card purchase, electronic debit cards may charge the merchant only about 60 cents per transaction.
However there is still some element of risk even with debt cards, because due to the high speed of the electronic transactions, there is always a chance that the debit card limit information may be out of date, if only by a few minutes or seconds, and thus there is some remaining chance of payment problems.
By contrast, electronic checks, which often take several days to clear, give the lowest level of risk. Due to the high efficiency of modern computerized communication and database methods, absent risk, the actual transaction costs are quite low, and thus the merchant may only be charged a few cents (e.g. around five cents) per transaction, and the consumer will often be charged nothing.